The government has a long-standing reputation for frowning upon those who can’t meet a deadline, and Medicare is no exception. In fact, if you don’t make your elections before the deadline, you could face a hefty penalty that could follow you from month to month for years or even life.
Here’s the rundown of Medicare enrollment including; deadlines and penalties.
For other retirement-related inquiries, contact a financial advisor to help you sort through your questions.
When is Medicare Enrollment?
There are two different types of Medicare enrollment; initial enrollment and open enrollment.
Initial enrollment is when you first sign up for Medicare benefits and it takes place during a seven-month period around your 65th birthday.
Open enrollment is when you can elect to change your coverage options, this takes place from Oct. 15 to Dec. 7 each year.
Why Is There A Deadline For Medicare Enrollment?
The deadline ensures that all future qualified people (65+) sign up and start paying into the Medicare system. Like with any insurance, Medicare counts on the pay-in of all possible beneficiaries to afford the cost of healthcare for those in immediate need. Although you may not need healthcare from the jump, the assumption is that you will in the future.
If everyone only got insurance when they needed it, there would be no funds in place to support the system if there was an influx of new beneficiaries all at once.
Medicare Late Enrollment Penalties
Depending on what coverage you’re discussing, you could be facing a variety of penalties (1% to 10%). These penalties are also recurring, meaning that this won’t be a one-time fee. Plus, the fees can have a variety of timelines before they finally drop from your premium price. Let’s walk through the Medicare coverages and penalties; parts A, B and D.
Medicare Part B Late Enrollment Penalty
Medicare Part B assists with the cost of doctor’s visits, preventative care, outpatient services and medical equipment to name a few. There is no “premium-free” option as there is for other coverage plans so everyone is subject to a late enrollment penalty if they don’t enroll on time.
Penalty: 10% fee on the Part B premium for every 12 months you don’t enroll. Plus, this fee will not fall away as other coverages allow.
Example: You missed enrollment for four years past your eligibility date, this is equivalent to a 40% jump in the premium price. The Part B premium price is $164.90 for 2023. Therefore your new price will be $164.90 + $65.96 = $230.86 each month. Also, keep in mind that Part B premiums usually rise year over year, so this is only the lowest price possible with likely hood of increases each year. And since this fee new doesn’t have a time limit, you’re stuck with this amount for the remainder of your life.
Medicare Part D Late Enrollment Penalty
Medicare Part D is a voluntary prescription drug coverage however, it is highly advised to enroll. Those who opt out initially and then want to enroll past eligibility will pay a fee for the remainder of their time having Part D coverage (which is usually for the rest of their life).
Penalty: 1% fee of the national base beneficiary premium multiplied by the number of months you went without Part D coverage or having another drug coverage.
Example: You missed 39 months of coverage which now requires you to pay 39% of the current Part D premium ($32.74 in 2023). Your new coverage costs now becomes, $32.74 + $12.80 (The math actually factors out to $12.77, but the penalty always rounds to the nearest 10 cents) = $45.54 each month.
Medicare Part A Late Enrollment Penalty
Medicare Part A covers hospital stays and nursing facilities. If you worked for the past 10 years and paid Medicare payroll taxes through Social Security, you qualify for premium-free Medicare Part A. Most people qualify and don’t have to worry about a late enrollment penalty.
However, if you are in the small group that does not qualify these are the penalties you could face.
Penalty: 10% fee on Part A premium for double the number of years you were not enrolled. Plus, the fee stays tacked on until those years have passed.
Example: You missed enrollment for two years past your eligibility date, this is equivalent to a 20% jump in the premium price. The Part A premium price for 2023 is $278 at its lowest and varies depending on the situation. Therefore your new price for the next four years is at least $305.80 each month and only after the four years have lapsed will the extra 10% penalty fall off.
Medicare supplemental plans, like Medicare Part C, do not have late enrollment penalties. This is due to them being supplemental and offering additional coverage to what is required.
The Bottom Line
Unlike traditional health insurance which has annual enrollment, you cannot opt in for Medicare benefits on your own timeline. You must do it either during your 65th birthday month, three months prior or three months after totaling a seven month enrollment period. After this, you’re forced into late enrollment. However, you can change your Medicare coverage annually during “Open Enrollment.” Being aware of these timelines is crucial, and can cost you significantly otherwise.
Tips for Retirement Planning
- Consider talking to your financial advisor about Medicare planning and how to decide what type of coverage you might need when the time comes to enroll. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Purchasing a long-term care insurance policy could make sense if you anticipate needing long-term care in retirement. You could apply for Medicaid to pay for long-term care but that might require you to spend down assets first. Long -term care insurance could help pay for those costs while preserving assets. You may also consider a hybrid policy that offers both long-term care coverage and life insurance.
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